Business Directories

Dana Gas, creditors to thrash out sukuk deal

Dubai, May 19, 2012

Dana Gas could become the first company in the UAE to restructure a bond as concerns rise that it will not have enough cash to repay a $1 billion convertible sukuk (Islamic bond) at maturity in October.

The Abu Dhabi-listed firm said this week it had hired advisers to help it weigh options for repayment of $920 million still outstanding on the out-of-the-money convertible and was committed to finding a consensual solution.

Dana's shares have been battered by concerns over how it will find funds to repay the bond, and limited communication from the company on the matter. The stock has dropped 40 percent in the past year, to 0.39 dirhams at Wednesday's close - just one-fifth of the bond's conversion price of 1.926 dirhams.

The 7.5 percent sukuk was bid at 68 cents on the dollar on Wednesday, according to Thomson Reuters data, having fallen from around 75.50 at the beginning of the week.

'The credit is definitely distressed. The company's lack of definitive repayment announcements has pushed this further drop,' said Thomas Christie, fixed income sales trader at Rasmala investment bank.

Natural gas producer Dana, which has operations in the UAE, Egypt and Iraq's Kurdistan region, says its cashflow has been affected by global economic conditions and regional events, including Egyptian unrest last year which delayed payments.

Below are some possible scenarios the company will be weighing as it tries to thrash out an agreement with holders of the sukuk, thought to be mostly global investment funds.

Dana has hired Blackstone Group, Deutsche Bank and law firm Latham & Watkins as advisers, while investors have hired law firm Linklaters, one source told Reuters.

A repayment in full and on time is seen as highly unlikely because the company has indicated it does not have cash reserves that would enable it to meet its obligations at maturity.

In its latest financial statements, the Gulf region's only listed natural gas company said its cash balance was 524 million UAE dirhams ($142.66 million) at March 31. Refinancing the sukuk could also be a challenge.

European banks have already pulled back from non-core lending activities and the cost of funding is high, especially for unrated and non-government-related entities.

Despite relatively higher liquidity in the local banking sector, credit growth among most UAE banks remains weak. Tapping debt markets to refinance the sukuk would result in significant premiums, given scrutiny of the existing bond.-Reuters